Some borrowers are now applying for exceptionally long-term mortgages to finance the purchase of a home or refinance an existing mortgage. The amortization periods can be extended to 40 or even 50 years. These loans were first introduced in the 1980s.
The key reason for applying for such loans is to minimize the borrower's monthly payments. And it does just that, compared with a traditional 30-year mortgage. In many cases, selecting a long-term loan is the only way a marginal borrower can qualify for a needed mortgage. The lower monthly payment may make it possible to squeak by the qualification requirements.
Some lenders are quite creative in structuring long-term mortgage offers. For example, they might offer a 40-year hybrid mortgage. This loan could be a 5/1 ARM, with five years of fixed-rate interest calculated from a 40-year amortization term, followed by 35 years with annual rate adjustments.
A 50-year mortgage is rarely offered, but is still available from some lenders. It's considered something of a novelty by some experts, who occasionally compare it to the 99-year mortgage offered by a few lenders a couple of decades ago. Others consider these loans to be close to an interest-only mortgage.
The downside to ultra-long-term mortgages is the huge additional interest that accumulates over the years. Also, these loans often require slightly higher interest rates and points. Some lenders require a larger down payment. In the long-term, it's a costly option, and it takes longer to build equity in the home.
However, these mortgages can be very useful to home buyers who could not afford or qualify for a conventional 30-year mortgage. It could make the difference between being able to purchase a home or remaining as a renter.
Jim Woodard writes a nationally syndicated column and freelance features on real estate and mortgage news and trends. Email:
storyjim@aol.com